Federal funds are reserve balances that private banks in the U.S. hold at Federal Reserve banks. These funds are used for various types of inter-bank transactions, including lending to other banks that have insufficient reserves.
Non-interest-bearing deposits held at the US Federal Reserve System that are traded between member banks. The Federal funds rate or Fed funds rate is the overnight rate paid on these funds.
In the context of banking, federal funds that are good the same day in contrast to clearinghouse funds, which typically require three days to clear or involve a one-day float. Good money is also a concept discussed in Gresham's Law, which states that currency of superior intrinsic value will be driven out of circulation by currency of lesser intrinsic value.
